Estimating Menus of Linear Contracts for Mass Transit Firms (in the Spirit of Laffont and Tirole)

Pierre Wunsch
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Pierre Wunsch: Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium

No 1996040, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Relying on numerical methods, we estimate menus of linear contracts as proposed by Laffont and Tirole (1986) for the regulation of firms in a framework with moral hazard and adverse selection. The main idea is to circumscribe the uncertainty about the unknown cost parameters by using regular inference techniques in econometrics. More precisely, the asymmetry of information is assumed to be limited to the unexplained variance of a cost estimation based on a cross-section of 177 transit firms. The menus are made contingent upon the technical characteristics of the networks and depend on simple assumptions dictated mostly by empirical evidence for the industry under review.

Date: 1996-09-01
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